Free the Markets, Free the Brews

Eighty-one years ago today, a long national nightmare was put to rest. Thirteen chaotic years of alcohol prohibition ended when the 21st amendment to the Constitution was ratified, making the sale of liquor legal throughout the United States once again.

There hasn’t been a nationwide ban on alcohol in nearly a lifetime, but prohibition-era regulatory relics still manage to put a damper on what could be an even more thriving industry: Craft beer.

Each state, county, city, and even some towns have their own alcohol regulations — most of which are left over from the days immediately following prohibition. In Virginia, research from the Mercatus Center found that an entrepreneur looking to enter the brewing market “must complete at least five procedures at the federal level, five procedures at the state level, and — depending on the locality — multiple procedures at the local level.”

Another remnant of the prohibition era are “sin taxes” on alcohol. On average, 40 percent of the cost of every beer is going into federal or state coffers, partially to dissuade you from enjoying your favorite craft brew. These taxes are even higher on both spirits and wine.

Perhaps most damaging are the prohibition-era distribution laws known as the “three-tier” system. Under this regime, suppliers, wholesalers, and retailers must remain entirely separate entities. In a classic example of a government-created monopoly, this scheme forces brewers to sign contracts with one distributor, who then has exclusive rights to sell their product to stores and restaurants in a given area.

Overall, the regulatory landscape makes it difficult for small craft breweries to build their business by saddling them with unnecessary compliance costs, taxes, and barriers to new markets outside of their local region.

On the flip side, this regulatory labyrinth has done a lot to protect big, established brewers who can easily foot the expenses. But thankfully, better taste and an evolving freer market are beginning to prevail.

As the New York Post recently reported, there were only 200 small breweries in the U.S. in 1980. Today, there are over 2,000, and as a result, Budweiser is no longer the “King of Beers.” Interestingly enough, this outcome has a lot to do with the evolving palate of young consumers.

As the article states, “Craft beers — despite their tiny marketing budgets — account for 15 percent of the beer budget of the youngest legal drinkers. Bud’s market share, despite that gargantuan [$449 million] advertising spend, is down to 7.6 percent, nearly a 50 percent drop in just the last decade.” In fact, according to Budweiser’s own research, 44 percent of drinkers between the ages of 21 and 27 have never even tasted the product.

It should come as no surprise that millennials, who have come of age in an era where technology has allowed us to tailor so much of our lives to our preferences, appreciate the growing diversity the beer industry has to offer. While unnecessary regulations do restrict our access to craft beer (and are undoubtedly keeping new entrants from the marketplace, as research demonstrates), the rise of small brewers represents a significant triumph of small businesses over bureaucratic largess in an era rampant with cronyism.

We can only hope that politicians will take notice of this trend and work to reduce the undue regulatory burden that entrepreneurs face in this industry. The truth is, however, that this is unlikely to happen without organized pressure from those who both partake in craft beer and care about enacting fair standards that don’t unduly favor incumbent firms.

As we raise our glasses in celebration of prohibition’s demise today, let us be mindful of the fact that a free market is what will ultimately allow us to free the brews.